Ashley Corn August 4, 2021
A guarantor loan is an ideal option for borrowers with a bad credit history. They get affordable interest rates based on the credit profile of a guarantor. Thus, their financial mistakes don’t hurt their prospect to get financial support from the lenders. However, it is certainly not the popular option among the borrowers because of various reasons. The lenders were satisfied with the process as a more responsible guarantor is involved. Still, the risk involved, along with the experience, made borrowers find alternatives to a guarantor loan.

Reasons for the Downfall of Guarantor Loans

The complex process of guarantor loans was considered beneficial for the borrowers and lenders. Guarantors have nothing to gain except for helping their family and friends in need. Here are some other reasons that contributed to the downfall of guarantor loans in the financial market.
  • Affordability Lenders offer a loan amount based on the affordability of the borrower. However, the guarantor loan has a different process and requirements to get approval. The lenders were offering a loan amount beyond the affordability of the borrower. The credit profile of the guarantor was considered more important than the borrower. Thus, the application is approved if the guarantor can afford the loan repayment. You can blame the lenders for increasing the risk of default for the borrowers.
  • Unfair Treatment Borrowers can provide a guarantor after negotiating with the lender to get a better offer. However, they find the offer almost the same even after the signature of a guarantor. Thus, it was not worth the risk for borrowers to introduce a lender to get minor changes in the initial offer. Though, you can check the loan offers from different lenders in real-time through the online platform. Always check the initial offer for your credit profile before asking for a guarantor loan. Or, you can contact a direct lender to get easy loans in the UK for bad credit without a guarantor.
  • Impact on Credit Profile Your credit history contains the missed payments and defaults to keep track of your financial behaviour. It sounds reasonable to face the consequences of your actions. But the guarantor is responsible for the missed payments and defaults of the borrower. They need to repay the loan if the borrower defaults on the payment. Thus, their credit profile will get jeopardise with negative markers in case of missed payments. The borrowers also take a hit because of the missed payments if the instalments are beyond their budget.
  • Mistreatment of Guarantor According to the agreement, the lenders can call the guarantor in case the borrower has failed to make payment for a long time. It is okay to warn the guarantor of possible consequences as they are responsible for repayment. However, they were contacted earlier by the lender’s representative. The period of missing payment was not mentioned in the fine print of the agreement. Thus, the lenders often misused their power to get instalments after a couple of missed payments. The legal threats were enough to create unnecessary stress of repayment on the guarantors.
  • Risk of Losing Personal Relationship You cannot risk important relationships in your life because of financial support. You will lose contact with a very reliable person in case of a default. Thus, the stress of repayment will increase because of their involvement Moreover, it will lead to an awkward situation if someone refuses to sign as a guarantor. You may not forgive them for refusing the support during your time of need. Though, it is a reasonable decision not to take the risk based on your bad credit history.
  • Reduced Available Credit You already are receiving more loan amounts than the available credit for your profile. But the guarantor’s credit availability will take a hit after the approval of the loan application. It will reflect on their credit history to reduce the available credit for their profile. Thus, they may not get approval from lenders during a financial emergency. This creates doubt among the borrowers as they don’t want to cause trouble. For guarantors, they hesitate to sign because of doubts over their financial future.
  • Uncomfortable Conversations Not everyone feels confident enough to share their financial problems with others. Asking for help with the loan application is an uncomfortable conversation for many. Thus, they avoid the guarantor loans even for high interest to keep the financial problems to themselves.

Alternative for Guarantor Loans

You don’t have to visit the bank to get guarantor loans for bad credit. The direct lenders in the UK are offering loans for bad credit loans without security or guarantor. Moreover, the interest rates are affordable to make them the perfect alternative to guarantor loans. Your current affordability is more important than the previous financial mistakes. Thus, a guarantor is not required as long as you can afford the repayment with your income.

Conclusion

To sum up, guarantor loans should not remain in your search queries on Google because of the available alternatives. It makes no sense to get someone else involved in the repayment to get small benefits on the initial offer. Thus, the risk is not worth the trouble when affordable interest is available for your bad credit profiles.